Donors statement on withholding of budget support to Malawi

As Chair of the Common Approach to Budget Support (CABS) group, I have the honour to be representing my colleagues who make up the Common Approach to Budgetary Support (CABS) group at this important meeting.

We are holding this CABS review at a very difficult time for Malawi, and this is really an extra-ordinary CABS meeting which reflects the extra-ordinary situation the country currently finds itself in. Malawi has faced some serious challenges over the last 18 months, but some brave decisions by the Government, support from donors, and a strict adherence to the IMF’s Extended Credit Facility programme have helped keep the government on track. The emphasis by the government over the last year on correcting policy distortions and introducing disciplinary measures to manage the economy is to be commended.

As a result the country saw some positive developments over the last year, including increased foreign exchange availability, improved availability of fuel, up until recently, a reasonably stable kwacha, increased import cover to over 2.1 months cover in October and an increasing level of confidence in economic stability. The inflation rate reduced, and real GDP was projected to grow by 5% in 2013 on the back of rising production in manufacturing, agriculture, fishing and forestry.

Sarah Sanyahumbi: Budget support withheld

A GoM business survey earlier in the year indicated that capacity utilisation by Malawian firms had risen to 60%, having fallen to an average of 30% in mid-2012. A significant number of companies were reported to have started expanding their enterprises, and were gearing up to expand exports to take advantage of the depreciated kwacha.

However, during the last year there were also continued concerns about public financial management, monitoring and accountability, and public sector reform and performance. And the economy remains fragile and more recent data is not so positive. The latest World Bank Ease of Doing Business report saw Malawi slip by 10 places. The kwacha is beginning to depreciate again. This is particularly worrying as Malawi enters the traditional “lean” season.

The concerns above have been further compounded by the recent revelations of the cashgate scandal. Investigations to date have laid bare systemic corruption across the public financial management systems and the waste and theft of public resources. .

Clearly as investigations are ongoing, we cannot speculate too much on what the outcome will be. But we do know that this has seriously dented confidence in the government’s financial management systems and that, as a result of this, donor funds are currently delayed. We will not be able to resume support through government systems until we have a clear assurance, independently verified, that our resources are all being used for their intended purpose.

An IMF mission is in country now holding consultations aimed at reassessing the fiscal framework and agreeing a macro-economic programme appropriate to the current circumstances.

It is important to be clear that donor support not through government systems is not affected by the on-going cashgate crisis. So it is not appropriate to talk about a suspension of all aid, which seems to be a popular misconception at the moment. There are still large donor funded programmes in health, education, emergency food security and other sectors, and we are committed to doing what we can to protect the most vulnerable people in Malawi during this difficult time.

“Cashgate” offers an opportunity to address many of the concerns which we have been talking about for several years now, and to take action to bring greater accountability to the public.

As we heard at our pre meeting with civil society representatives on Wednesday, the key issues that they are raising for this review are the same key issues as they raised at the CABS meeting back in February: for example budget management, inefficient procurement and corruption. These are issues which we are all concerned about. They were also raised in the CABS issues paper which we will discuss later today, and which was produced before the current crisis. As I said before, these issues are not new.

Civil society also said that moving forward it cannot be business as usual, that we need to do things differently, and that there is a need for tangible results. As I said at our meeting with them, I couldn’t agree more! Now is the time for action. Now is the time for the Government to take the initiative, take the action that is needed to address the weaknesses in the systems, and make sure that 2013 goes down in history as the year that Malawi turned a corner and became a beacon in the region for strong, clean and accountable budgetary and financial management.

If Government can do this, we will support you. Donors have already quickly mobilised support to the “cashgate” investigations, including an independent investigator, a forensic audit team and support to strengthening IFMIS. And more support is being discussed. We are committed to supporting the government in taking forward these investigations, but I do want to underline that this is a Malawian crisis and as such, we see it very clearly as the government’s responsibility to tackle these issues. It the Government of Malawi’s responsibility to account to the people of Malawi for the use – or misuse – of state resources.

I want to point out here, also, that, once trust and confidence is lost, it takes time to rebuild this. And I’m afraid there are no quick fixes to this problem. The Government’s action plan, which we will have an update on later today, is a good start, but it is likely that more will need to be done.

We need to instil a culture of compliance, of accountability and performance. It is not just about technical fixes to the systems. It is about the problem of the lack of accountability of the people involved in the management of these systems that we need to address.

Regular, open and transparent communication with all stakeholders – civil society, donors and the general public through the media and other means – will be necessary, so that speculation and misinformation can be avoided and progress can be clearly monitored. This meeting will provide an opportunity for this, particularly in the final session and the outcome documents which will be publicly shared. Let’s use today to have practical, outcome oriented, discussions which will help move this agenda forwards.

I think there is a challenge to all of us here. We have spent considerable time and money on various reform programmes and capacity building over the years. What do we have to show for it? Systems at all levels failing the people of Malawi. Abuse of those systems stealing from the people of Malawi.

As we prepare to support 1.4 million people to meet their daily food requirements in this year’s humanitarian response investigations are going on about how billions of kwacha – which should be going to these same people have been mis-appropriated.

Clearly, there is something wrong.

But, as I said earlier, let us not lose sight of the opportunity that comes from this crisis. This is time for real action – for real reform. We welcome the commitments made to date to such reforms but we are conscious that the road ahead will not be easy. We look forward to hearing the Government’s Action Plan and discussing priorities.

We hope also to put forward ideas on a CABS reform agenda. We’ll hear more on this during the presentation later today, but the thinking behind this is that we need the CABS to be a more focussed and action oriented forum which clearly targets those actions that need to be taken to strengthen government systems and provide the necessary evidence of progress that can be used as the basis for further discussion on financial aid.

We look forward to fruitful and outcome oriented discussions with the Government today, and to a new and we hope re-invigorated push towards establishing sound, safe and efficient public finance systems in Malawi.